-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PWCTOT27mWeBaQtqBMKu2228RIgo2WVjjnL1O+EKWdpKwGZK4cmmShYWO6u7ybQJ 1fXNyA3+OtHR/We0IGJazA== 0000950115-99-001245.txt : 19990916 0000950115-99-001245.hdr.sgml : 19990916 ACCESSION NUMBER: 0000950115-99-001245 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOSPECIFICS TECHNOLOGIES CORP CENTRAL INDEX KEY: 0000875622 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 113054851 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19879 FILM NUMBER: 99711716 BUSINESS ADDRESS: STREET 1: 35 WILBUR ST CITY: LYNBROOK STATE: NY ZIP: 11563 BUSINESS PHONE: 5165937000 MAIL ADDRESS: STREET 1: 35 WILBUR STREET CITY: LYNBROOK STATE: NY ZIP: 11563 10-Q 1 QUARTERLY REPORT U.S. Securities and Exchange Commission Washington D.C. 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: July 31, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission File number: 0-19879 BioSpecifics Technologies Corp. ------------------------------- (Exact name of Small Business Issuer as Specified in Its Charter) Delaware 11-3054851 -------- ---------- (State of Incorporation) (IRS Employer I.D. Number) 35 Wilbur St. Lynbrook, NY 11563 ------------------ (Address of principal executive offices) (516) 593-7000 -------------- (Issuer's telephone number, including area code) Check whether the issuer: (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [_] APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 4,529,766 shares of Common Stock, $0.001 par value as of September 1, 1999. Transitional Small Business Disclosure Format (check one): Yes [_] No [x] Page 1 of 14 INDEX ----- Page ---- PART I - FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 Consolidated Financial Statements: Balance Sheets as of July 31, 1999 (unaudited) and January 31, 1999 3 Statements of Cash Flows for the Three and Six Months Ended July 31, 1999 and 1998 (unaudited) 4 Statements of Cash Flows for the Six Months Ended July 31, 1999 and 1998 (unaudited) 5 Notes to Consolidated Interim Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II - Other Information 13 SIGNATURES 14 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BioSpecifics Technologies Corp. and Subsidiaries Consolidated Balance Sheets
(Unaudited) July 31, January 31, ASSETS 1999 1999 ------------ ------------ Cash and cash equivalents $ 5,639,470 $ 5,086,725 Marketable securities 861,625 2,102,951 Accounts receivable 1,107,517 1,202,003 Inventory 1,511,384 1,488,525 Deferred tax assets - net 605,351 348,206 Prepaid expenses & other current assets 261,030 135,623 Due from related party 367,189 75,000 ------------ ------------ TOTAL CURRENT ASSETS 10,353,566 10,439,033 Property, plant, and equipment - net 786,374 713,716 Due from related parties 170,101 170,101 Other assets 28,811 53,693 ------------ ------------ TOTAL ASSETS $ 11,338,852 $ 11,376,543 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 1,458,130 $ 1,179,900 Notes payable to related parties 12,760 12,510 Income taxes payable -- 78,566 Deferred revenue 175,000 175,000 ------------ ------------ TOTAL CURRENT LIABILITIES 1,645,890 1,445,976 Minority interest in subsidiaries 265,123 260,849 STOCKHOLDERS' EQUITY Series A Preferred stock, $.50 par value; 700,000 shares authorized; none outstanding -- -- Common stock, $.001 par value; 10,000,000 shares authorized; 4,891,146 shares issued at July 31, 1999 and January 31, 1999 4,891 4,891 Additional paid-in capital 3,734,375 3,734,375 Retained earnings 7,603,550 7,667,141 Accumulated other comprehensive loss (3,740) (3,101) ------------ ------------ 11,339,076 11,403,306 Less: Treasury stock - 361,380 and 310,780 shares, at July 31, 1999 and January 31, 1999, respectively, at cost (1,911,237) (1,733,588) ------------ ------------ STOCKHOLDERS' EQUITY - NET 9,427,839 9,669,718 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,338,852 $ 11,376,543 ============ ============
See accompanying notes to consolidated financial statements. 3 Biospecifics Technologies Corp. and Subsidiaries Consolidated Statements of Operations
(Unaudited) (Unaudited) Three months ended Six months ended July 31, July 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenues: Net sales $ 1,061,052 $ 1,064,785 $ 1,743,780 $ 2,288,328 Royalties 674,777 960,349 1,271,524 1,444,464 ----------- ----------- ----------- ----------- 1,735,829 2,025,134 3,015,304 3,732,792 ----------- ----------- ----------- ----------- Costs and Expenses: Cost of sales 605,345 553,222 1,013,216 1,099,979 Selling, general and administrative 820,477 478,833 1,467,681 908,668 Research and development 467,029 569,823 972,730 991,641 ----------- ----------- ----------- ----------- 1,892,851 1,601,878 3,453,627 3,000,288 ----------- ----------- ----------- ----------- Income (loss) from operations (157,022) 423,256 (438,323) 732,504 Other income (expense) Investment and other income 88,158 70,658 130,849 131,676 Interest expense (1,260) (1,741) (2,350) (3,384) ----------- ----------- ----------- ----------- 86,898 68,917 128,499 128,292 ----------- ----------- ----------- ----------- Income (loss) before taxes and minority interest (70,124) 492,173 (309,824) 860,796 Income tax expense (benefit) (150,000) 125,680 (250,510) 261,780 ----------- ----------- ----------- ----------- Income (loss) before minority interest 79,876 366,493 (59,314) 599,016 Minority interest in net income (loss) of subsidiaries 6,375 17,260 4,275 21,160 ----------- ----------- ----------- ----------- Net income (loss) $ 73,501 $ 349,233 ($ 63,589) $ 577,856 =========== =========== =========== =========== Basic net income (loss) per common share $ 0.02 $ 0.07 ($ 0.01) $ 0.12 =========== =========== =========== =========== Weighted-average common shares outstanding 4,538,266 4,779,170 4,550,916 4,782,220 =========== =========== =========== =========== Diluted net income (loss) per common share $ 0.02 $ 0.07 ($ 0.01) $ 0.12 =========== =========== =========== =========== Weighted-average common and dilutive potential common shares outstanding 4,538,416 4,885,030 4,550,916 4,903,400 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements 4
BioSpecifics Technologies Corp. and Subsidiaries (unaudited) Consolidated Statements of Cash Flows Six months ended July 31, 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ($ 63,589) $ 577,856 Adjustments to reconcile net income (loss) to net cash provided by/(used in) operating activities: Depreciation 95,750 94,152 (Gain) loss on marketable securities - net 12,559 18,554 Minority interest in income of subsidiaries 4,275 21,160 Costs associated with issuance of common stock grants -- 36,000 Changes in operating assets & liabilities: Accounts receivable 94,486 (219,938) Marketable securities - net 1,228,767 1,283,165 Inventory (22,859) 141,118 Due from related party (292,189) -- Prepaid and other current assets (125,408) (135,080) Deferred tax assets (257,145) -- Other assets 24,882 48,943 Accounts payable & accruals 278,230 (57,865) Income taxes payable (78,566) 68,024 Due to related parties 250 250 Cumulative translation adjustment (641) 553 ----------- ----------- Net cash provided by operating activities 898,802 1,876,892 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for plant, property and equipment (168,408) (46,127) ----------- ----------- Net cash used in investing activities (168,408) (46,127) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Treasury stock purchases (177,649) (197,696) Proceeds from stock option exercises -- 20,175 ----------- ----------- Net cash used by financing activities (177,649) (177,521) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 552,745 1,653,244 CASH AND EQUIVALENTS: Beginning of Period 5,086,725 4,431,055 ----------- ----------- End of Period $ 5,639,470 $ 6,084,299 =========== =========== SUPPLEMENTAL DISCLOSURE Cash paid during period for interest $ 2,351 $ 6,057 =========== =========== Cash paid during period for income taxes $ 32,327 $ 174,371 =========== ===========
See accompanying notes to consolidated financial statements 5 BIOSPECIFICS TECHNOLOGIES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS JULY 31, 1999 (UNAUDITED) 1. Description of Business and Basis of Presentation ------------------------------------------------- BioSpecifics Technologies Corp. (the "Company") serves as a holding company for Advance Biofactures Corporation ("ABC-New York"), Advance Biofactures of Curacao, N.V. and subsidiaries ("ABC-Curacao"), and Biospecifics Pharma GmbH ("Bio Pharma"), Germany. The Company, through its subsidiaries, is engaged in the business of producing and licensing for sale by others a fermentation derived enzyme named Collagenase ABC (the "product") which is approved by the U.S. Food and Drug Administration ("FDA"), and researching and developing additional products derived from this enzyme for potential use as pharmaceuticals. The product is used principally as a topical debridement treatment for dermal ulcers. The Company currently derives all or substantially all revenues through a license agreement with a U.S. pharmaceutical company, Knoll Pharmaceutical Company ("KPC"). Sales of the product have been principally to KPC during the six months ended July 31, 1999. The license with KPC expires in 2003. The non renewal of the license agreement by KPC could have a material adverse impact on the financial condition of the Company unless the Company secures other licensees. In the event that KPC were to cancel the license agreement for cause, the financial condition of the Company would be materially adversely affected unless the Company were to find a similar licensee in the United States. The Company has licensing agreements with a number of foreign companies, some of which are marketing the product and others of which will attempt to market the product or products in development in licensed territories when permitted by local governmental authorities. See "Liquidity, Capital Resources, and Changes in Financial Condition" with respect to issues raised by the FDA. 2. Interim Financial Statements ---------------------------- In the opinion of management, the accompanying consolidated financial statements of the Company reflect all adjustments necessary to present fairly, in all material respects, the Company's balance sheet as of July 31, 1999, the statements of operations for the three and six months ended July 31, 1999 and 1998, and statements of cash flows for the six months ended July 31, 1999 and 1998. The results of operations for interim periods are not necessarily indicative of the results to be expected for an entire fiscal year, and the results for the current interim period are not necessarily indicative of results to be expected in other interim periods. These interim financial statements should be read in conjunction with the Company's Form 10-KSB for the fiscal year ended January 31, 1999. 6 3. Net income (loss) per share --------------------------- Basic net income (loss) per share ("EPS") excludes dilution and is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that would occur if common stock equivalents were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Dilutive common stock options and warrants are included in the diluted EPS calculation using the treasury stock method for the three months ended July 31, 1999 and the three and six months ended July 31, 1998. As a result of the net loss for the six months ended July 31, 1999, common stock options and warrants have not been included in the diluted EPS calculation, as their effect would have been antidilutive. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- Information provided by the Company or statements contained in this report or made by its employees, if not historical, is forward-looking information which involves uncertainties and risk. The Company cautions readers that important factors may affect the Company's actual results and could cause such results to differ materially from forward-looking statements made by or on behalf of the Company. Such factors include, but are not limited to, changing market conditions, the impact of competitive products and pricing, timely development, approval by FDA and foreign health authorities, and market acceptance of the Company's products in development, the Company's dependence on KPC, and other risks detailed herein and in other filings the Company makes with the Securities and Exchange Commission. Further, any forward-looking statement or statements speak only as of the date on which such statements were made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement or statements were made. The Company incorporates by reference the Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in its Form 10-KSB for the fiscal year ended January 31, 1999. Three months ended July 31, 1999 and 1998 ----------------------------------------- Net sales - Net sales for the three months ended July 31, 1999 and 1998 were $1,061,052 and $1,064,785, respectively, representing a $3,733 or less than 1% decrease. Sales of Collagenase ABC to KPC in the United States were up slightly, offset by a slight decrease in sales to pharmaceutical companies in countries outside the United States. 7 Royalties - Royalties for the three months ended July 31, 1999 and 1998 were $674,777 and $960,349, respectively, representing a $285,572, or 30% decrease. As reported to the Company by KPC, during the three months ended July 31, 1998, KPC sold a record amount of Collagenase Santyl(R), on which the royalty is earned. Those record sales reflected inventory accumulation on the part of KPC's customers, and diminished Collagenase Santyl(R) sales and royalty earned during the subsequent three months ended October 31, 1998. While there can be no assurance, the Company believes that sales of Collagenase Santyl(R) Ointment for the year ended January 31, 2000 will be greater than those achieved in the year ended January 31, 1999. Cost of sales - Cost of sales for the three months ended July 31, 1999 and 1998 were $605,345 and $553,222, respectively, representing an increase of $52,123, or 9%, due to an increase in production supervision staffing. Selling, general and administrative - Selling, general and administrative ("SG&A") expenses for the three months ended July 31, 1999 and 1998 were $820,477 and $478,833, respectively, representing an increase of $341,644 or 71%. During the quarter ended July 31, 1999, the Company continued to engage consultants to assist in responding to FDA inspectional observations on FDA's Form 483 ("483's") from FDA inspectors, the cost of which are included in SG&A. In addition, production lab personnel were highly involved in the response effort as well, resulting in a some level of production inactivity. Those costs usually allocated to production are included in SG&A. The Company anticipates that there will be considerable consultation costs and involvement of its lab personnel, in responding to the 483s, into the foreseeable future. See "Liquidity, Capital Resources, and Changes in Financial Condition". Research and development - Research and development ("R&D") expenses for the three months ended July 31, 1999 and 1998 were $467,029 and $569,823, respectively, representing a decrease of $102,794, or 18%. During the quarter ended July 31, 1998 higher clinical trial costs were incurred for clinical trials in the U.S. for Dupuytren's disease and Peyronie's disease. Also during the quarter ended July 31, 1998, costs were incurred to support applications for marketing approval in various countries in the European Union. The Company expects future R&D expenses to equal or slightly exceed the level incurred in the current quarter, as trials for Dupuytren's and Peyronie's diseases advance to new phases. Other income - net - Other income - net for the three months ended July 31, 1999 and 1998 was $86,898 and $68,917, respectively. The increase of $17,981 was due primarily to increasing values of equity securities held as trading security investments in the current year period versus the previous period. 8 Income tax expense (benefit) - The income tax expense (benefit) for the three months ended July 31, 1999 and 1998 was $(150,000) and $125,680, respectively, a decrease of $275,680. The Company recorded a tax benefit for the three months ended July 31, 1999 as a result of the generation of orphan drug tax credits from continued research expenditures for Dupuytren's and Peyronie's diseases. The benefit is available as a carryback/carryforward against income taxes paid in prior/future periods. Six months ended July 31, 1999 and 1998 --------------------------------------- Net sales - Net sales for the six months ended July 31, 1999 and 1998 were $1,743,780 and $2,288,328, respectively, representing a $544,548, or 24% decrease. The decrease in net sales was due to a decline in sales of Collagenase ABC to both KPC in the United States, and to pharmaceutical companies in countries outside the United States. The decline in sales to KPC is due to the timing of its purchases from the Company. While there can be no assurance, the Company expects sales of Collagenase ABC to KPC and its foreign customers in fiscal year ended January 31, 2000 to approximate levels achieved in the fiscal year ended January 31, 1999. Royalties - Royalties for the six months ended July 31, 1999 and 1998 were $1,271,524 and $1,444,464, respectively, representing a $172,940, or 12% decrease. As explained above, during the three months ended July 31, 1998, KPC sold a record amount of Collagenase Santyl(R), on which the royalty is earned. Those record sales reflected inventory accumulation on the part of KPC's customers, and diminished Collagenase Santyl(R) sales and royalty earned during the subsequent three months ended October 31, 1998. While there can be no assurance, the Company believes that sales of Collagenase Santyl(R) Ointment for the year ended January 31, 2000 will be greater than those achieved in the year ended January 31, 1999. Cost of sales - Cost of sales for the six months ended July 31, 1999 and 1998 were $1,013,216 and $1,099,979, respectively, representing a decrease of $86,763 or 8% due to lower net sales. The decrease was not commensurate with the lower net sales due to higher production costs, particularly supervisory personnel staffing costs. Selling, general and administrative - SG&A expenses for the six months ended July 31, 1999 and 1998 were $1,467,681 and $908,668, respectively, representing a $559,013, or 62% increase. As explained above, during the period ended July 31, 1999, the Company engaged consultants to assist in responding to 483's, the cost of which are included in SG&A. In addition, production lab personnel were highly involved in the response effort as well, resulting in a some level of production inactivity. Those costs usually allocated to production are included in SG&A. The Company anticipates that there will be considerable consultation costs and involvement of its lab personnel, in responding to the 483s, into the foreseeable future. See "Liquidity, Capital Resources, and Changes in Financial Condition". 9 Research and development - R&D expenses for the six months ended July 31, 1999 and 1998 were $972,730 and $991,641, respectively, representing a decrease of $18,911 or 2%. During both the six month periods ended July 31, 1999 and 1998, clinical trial costs were incurred as trials for Dupuytren's disease and Peyronie's disease advanced in the U.S. Also during the quarter ended July 31, 1998, costs were incurred to support applications for marketing approval in various countries in the European Union. The Company expects future R&D expenses to equal or slightly exceed the level incurred in the current period, as trials for Dupuytren's and Peyronie's diseases advance to new phases. Other income - net - Other income - net for the six months ended July 31, 1999 and 1998 was $128,499 and $128,292, respectively. During the current period, higher income from increasing values of equity securities was offset by lower income from fixed income securities held as trading security investments as the Company's overall level of investments in securities was reduced in the six month period ended July 31, 1999. Income tax expense (benefit) - The income tax expense (benefit) for the six months ended July 31, 1999 and 1998 was $(250,510) and $261,780, respectively, a decrease of $512,290. As explained above, the Company recorded a tax benefit for the six months ended July 31, 1999 partially as a result of its pretax loss. In addition, the Company generated orphan drug tax credits as a result of continued research expenditures for Dupuytren's and Peyronie's diseases. The benefit is available as a carryback/carryforward against income taxes paid in prior/future periods. LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION --------------------------------------------------------------- The Company's primary source of working capital is from operating activities, including sales, royalties and new license fees. As of July 31, 1999, the Company had working capital of approximately $8,708,000 which included cash and cash equivalents and marketable securities of approximately $6,500,000. The principal source of cash during the six months ended July 31, 1999 was approximately $899,000 from operating activities. The principal uses of cash during the period were expenditures for plant, property and equipment of approximately $168,000 and repurchases of Company stock of approximately $178,000. At July 31, 1999 the Company had commitments for capital expenditures of approximately $500,000. The Company plans to invest a total of between $1.5 million and $2.0 million in new equipment at its Lynbrook, New York, and Curacao, Netherlands Antilles facilities. In January and March of 1999, the Company was issued a List of Inspectional Observations on FDA Form 483 from FDA inspectors, citing numerous inspectional observations relating to deficiencies in the Company's "good manufacturing practice" at its Lynbrook, New York and Curacao, Netherlands Antilles facilities. In addition, on May 10, 1999, the Company received a letter from the FDA (the "FDA Letter") citing certain inspectional observations relating to deficiencies at its Lynbrook, New York facility, Curacao, Netherlands Antilles facility, and contract manufacturing facility. 10 The FDA Letter advised the Company that the FDA will institute formal proceedings to revoke the Company's license to manufacture Collagenase Santyl(R) Ointment unless the Company provides satisfactory assurances to the FDA, including submitting to the FDA a detailed, comprehensive plan of corrective action within 30 days, and undertakes significant remedial action to address the observations listed in the 483s and the FDA Letter, and otherwise demonstrates compliance with applicable regulatory requirements. The Company has provided the FDA with its plan of corrective action and met twice with the FDA to discuss the plan of corrective action. The Company has hired outside consultants, has employed additional staff for the Quality Control department, and will continue to seek to employ additional staff for the Quality Control and Quality Assurance departments to assist in further developing and executing the plan of corrective action, and is taking steps to reorganize the Quality Control and Quality Assurance departments. With regard to an agreement with KPC, pursuant to which KPC will continue to produce Santyl(R) Ointment from collagenase enzyme provided by the Company after April 23, 1999, in the event the FDA does not permit the Company to release into the marketplace such ointment prepared by KPC, the Company would be liable to reimburse KPC an amount estimated by the Company to be approximately $500,000 for the material and direct labor manufacturing costs of such ointment lots. Such a charge would apply to the current fiscal year, and would have a material adverse effect on the fiscal year's results. To date, the FDA has permitted the Company to release into the marketplace Santyl(R) Ointment from collagenase enzyme provided by the Company after April 23, 1999, and therefore no charge has been taken with regard to this agreement. The Company plans to invest between $1.5 million and $2.0 million in new equipment at its Lynbrook, New York, and Curacao, Netherlands Antilles facilities. This investment is intended to address pertinent observations in the 483s and the FDA Letter and position the Company to ensure the efficiency of its production process. The Company estimates it could spend between $500,000 to $800,000 for professional fees and other expenses in connection with the remediation of the FDA's deficiency observations. In view of the Company's working capital position and anticipated future profitable operations, although there can be no assurance, management believes that the Company has sufficient liquidity and capital resources to meet its immediate operating needs. The Company believes that cash on hand and cash provided by operations will be sufficient to meet its cash needs on an ongoing basis. However, if the Company is unable to address and remedy the observations listed in the 483s and the FDA Letter, it will be required to suspend or terminate operations. Due to the uncertainty of the outcome of the FDA issue, the Company's former independent auditors, KPMG LLP, have noted in their report on the Company's consolidated financial statements as of and for the year ended January 31, 1999 that the FDA Letter raises substantial doubt about the Company's ability to continue as a going concern. See Part II Other Information - - Item 6 - Exhibits and Reports on Form 8-K. 11 Year 2000 Compliance - -------------------- The Company is preparing its computer systems and hardware to contend with the issues related to the year 2000 ("Year 2000"). The Year 2000 issue results from computer programs being written using two digits rather than four to define the applicable year and to assume that the first two digits of a year were 19. As the year 2000 approaches, systems using such programs may recognize a date ending in "00" as the year 1900 rather than the year 2000, and so may not accurately process certain date-based information. To the extent that the Company's software applications contain source code that is unable to interpret appropriately the upcoming calendar year 2000 and beyond, some level of modification or replacement of such applications will be necessary to avoid system failures and the temporary inability to process transactions or engage in other normal business activities. The initial phase of the Company's preparation for the Year 2000 consists of assessment and planning. The assessment phase includes the assessment of all computer hardware, software, systems and processes ("IT systems") and non-information technology systems and other equipment containing embedded microprocessor technology ("non-IT systems"). The Company believes that all of its mission-critical computer programs and hardware are currently Year 2000 compliant. The Company has also assessed the risk relating to manufacturing equipment which may be impacted by the Year 2000 issue. The Company believes that its manufacturing equipment will not be affected by the Year 2000 issue because its manufacturing equipment's embedded chips and software programs, if any, are not date critical. In addition to the assessment of the IT systems and non-IT systems, the Company has identified relationships with third parties, including customers, vendors, suppliers and service providers, which the Company believes are critical to its business operations. The Company has one significant customer, which represents approximately 90% of its fiscal 1999 revenues. Based on its assessment to date of the Year 2000 readiness of its key customers, suppliers, including vendors, service providers and other third parties on which it relies for business operations, the Company believes that these third parties are taking action related to the Year 2000. However, the Company has limited ability to test and control such third parties' Year 2000 readiness, and it cannot provide assurance that failure of such third parties to address the Year 2000 issue will not cause an interruption of the Company's business. The Company will continue to monitor the progress of these third parties in resolving Year 2000 issues. The cost of ensuring Year 2000 compliance is not expected to be material. The Company believes that under a worst-case scenario, it could continue its normal business activities on a manual basis, however, the Company believes its internal computer systems will be Year 2000 compliant. With respect to potential Year 2000 failures of its vendors and suppliers, the Company plans to mitigate this risk by purchasing and storing critical raw materials used in the production process in advance, which the Company believes will enable it to continue normal operations for several months. 12 There can be no assurance that the Company will fully achieve Year 2000 compliance in a timely manner, that the Company will not have to increase significantly its expenditures relating to any such non-compliance, or that its business will not be materially adversely affected by any such non-compliance. New Reporting Standard - ---------------------- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management does not believe the adoption of this statement will have a material effect on the Company's consolidated financial statements. This statement will not be adopted until February 1, 2001, the start of fiscal year 2002. PART II - OTHER INFORMATION Item 1. Legal Proceedings - ------------------------- See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity, Capital Resources, and Change in Financial Condition." Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- (a.) The annual meeting of stockholders was held August 4, 1999. The purpose of the meeting was to elect two directors of the Company. (b.) The directors elected at the stockholders' meeting were Edwin H. Wegman and Rainer Friedel, MD., whose terms expire in 2002. The other directors whose terms of office as director continued after the meeting are Thomas L. Wegman and Paul A. Gitman, MD., whose terms of office expire in 2000, and Henry Morgan and Louis Lasagna, MD., whose terms of office expire in 2001. Item 6. Exhibits and Reports on Form 8-K On September 2, 1999, the Company filed Form 8-K for purposes of disclosing the dismissal of KPMG LLP as its independent accountants, and the appointment of Grant Thornton LLP as its new independent accountants. 13 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BioSpecifics Technologies Corp. (Registrant) Date: September 15, 1999 ------------------ By: /s/ Edwin H. Wegman ------------------------------ Edwin H. Wegman Chairman and President Date: September 15, 1999 ------------------ By: /s/ Albert Horcher ------------------------------ Albert Horcher Treasurer, Principal Financial and Chief Accounting Officer 14 EX-27 2 FDS
5 1 6-MOS JAN-31-2000 FEB-01-1999 JUL-31-1999 5,639,470 861,625 1,107,517 0 1,511,384 261,030 3,328,472 2,542,098 11,338,852 1,458,130 0 0 0 4,891 11,337,925 11,338,852 3,015,304 3,015,304 1,013,216 1,013,216 972,730 0 2,350 (309,824) 250,510 (63,589) 0 0 0 0 0 0
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